As the direct impacts of the COVID-19 pandemic continue to recede, several other risks to portfolios are beginning to emerge. To help investors better understand these current portfolio threats and how to effectively combat them, Wealth Professional recently turned to Sightline Wealth Management Senior Investment Advisor Katherine Gordon.
“One of the primary risks to investors in the coming months and possibly years is inflation, and the impact inflation will have on the purchasing power of their investments,” says Gordon. When focusing on fixed income, Gordon suggests that traditional bonds are not likely to be an appropriate option for many investors in our current market environment. Instead, Gordon suggests incorporating alternatives, such as private debt, into portfolios.
Commodities have also taken the spotlight recently, resulting from pandemic aftershocks and the Russia-Ukraine conflict putting pressure on the global supply chain. Within commodities, there is one Gordon has her eye on in particular: gold.
“One of Russia’s responses to being shut out of the SWIFT system was to back the ruble by gold,” Gordon explains. “This is not surprising, because under Basel III regulations, gold is considered a tier-one asset, meaning it is held on balance sheets at zero risk.” While Gordon does not think that Russia’s switch to the gold standard will be permanent, central banks around the world hold one-fifth of all the gold ever mined, which is another testament to this asset’s safety.
One of the biggest things that Gordon cautions to the publication is while some of these portfolio risks may seem temporary, political, economic and social uncertainty will likely weigh heavily on portfolios well into the future. As a result, investors will likely have to get creative to achieve positive returns.
“Gone are the days when a simple 60 percent equity to 40 percent bond portfolio would provide the real return income and growth over the last 30 years,” she says. “If the economy remains relatively strong with modest growth, it will be possible to generate a reasonable real return with selective strategies.”
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